BHP Billiton continues to improve productivity

BHP Billiton Plc released its operational review for the Nine Months Ended 31 March 2017. 


. Record production for the nine month period achieved at Western Australia Iron Ore (WAIO) and five Queensland Coal mines.

. Following 44 days of industrial action at Escondida, copper production guidance reduced to between 1.33 and 1.36 Mt. The commissioning of the Escondida Water Supply project and the planned ramp-up of the Los Colorados Extension project are now expected in the September 2017 quarter.

. As a result of damage to third party rail infrastructure caused by Cyclone Debbie, metallurgical coal production guidance reduced to between 39 and 41 Mt.

. Full year production guidance maintained for petroleum and energy coal. WAIO production guidance narrowed to between 268 and 272 Mt (100% basis).

. At Queensland Coal, the high-return Caval Ridge Southern Circuit latent capacity project was approved and will enable full utilisation of the 10 Mtpa wash-plant with ramp-up early in the 2019 financial year.

. In Onshore US, development activity is increasing with the approval of two additional rigs in the Haynesville, with gas prices hedged to deliver attractive rates of return.

. Divestment of non-core Onshore US acreage is progressing, with the sales process well advanced for up to 50,000 acres of the southern Hawkville. Our Fayetteville field is currently under review and we are considering all options including divestment.

. The Mad Dog Phase 2 Conventional oil development project was approved and a contract was executed with PEMEX Exploration and Production Mexico (Pemex) following the winning bid to acquire a 60% participating interest in, and operatorship, of Trion in Mexico.

. Commercial evaluation of the LeClerc gas discovery in Trinidad and Tobago is ongoing. Drilling of the Wildling appraisal well in the Gulf of Mexico is continuing, which will assist with establishing the scale of the Caicos oil discovery.


Operational performance

. Productivity has continued to improve across our operations and we see significant potential for further gains. For example in coal, record production was achieved at five Queensland mines supported by increased wash-plant utilisation, while truck utilisation also improved at New South Wales Energy Coal.

. We approved the high-return Caval Ridge Southern Circuit project in March 2017 and the Los Colorados Extension project is expected to ramp-up in the September 2017 quarter. Spence is now operating at 200 ktpa following the completion of the Spence Recovery Optimisation project in December 2016.

. We are increasing Onshore US development activity with the approval of two additional rigs in the Haynesville. Further monetisation of the portfolio for value is being pursued with the divestment of non-core Onshore US acreage at southern Hawkville advancing. The Fayetteville field is currently under review and we are considering all options including divestment.

. The Board approved the Mad Dog Phase 2 project in the deepwater Gulf of Mexico in February 2017. We also executed the contract with Pemex to acquire a 60 per cent participating interest in and operatorship of the Trion discovery in Mexico in March 2017.

. In Petroleum exploration, following positive drilling results at the LeClerc well in Trinidad and Tobago, commercial evaluation of the gas discovery is well advanced. Drilling of the Wildling appraisal well in the Gulf of Mexico is continuing with results now expected in the September 2017 quarter, which will assist with establishing the scale of the Caicos oil discovery.

. In technology, replication of the WAIO Integrated Remote Operations Centre in Brisbane for our Australian coal operations was completed in February 2017 and will support lower operating costs.

Major development projects

On 9 February 2017, the Board of BHP Billiton approved an investment of US$2.2 billion (BHP Billiton share) for the development of the Mad Dog Phase 2 project in the deepwater Green Canyon area of the Gulf of Mexico. The Bass Strait Longford Gas Conditioning Plant was fully commissioned during the March 2017 quarter and is now running at design capacity, enabling full production from the Turrum and Kipper fields. The commissioning of the Escondida Water Supply project is now expected in the September 2017 quarter.

At the end of the March 2017 quarter, BHP Billiton had three major projects under development in Petroleum and Potash, with a combined budget of US$5.1 billion over the life of the projects.

Corporate update

On 23 March 2017, BHP Billiton successfully concluded its US$2.5 billion bond repurchase plan. The repurchase targeted short dated US dollar bonds maturing before 2023 and was funded by BHP Billiton's strong cash position. The early repayment of the bonds has extended BHP Billiton's average debt maturity profile and enhanced BHP Billiton's capital structure.

During the March 2017 quarter, the Risk and Audit Committee commenced a tender process for the appointment of the external auditor. The process is scheduled to be completed in the September 2017 quarter, with the chosen firm to be appointed for the financial year beginning 1 July 2019. The planned commencement date is one year later than previously intended in order to provide adequate time for the chosen firm to manage independence requirements.

On 10 April 2017, BHP Billiton received a letter from Elliott Associates, L.P. and Elliott International, L.P. (Elliott). The letter outlined a proposal for changes to BHP Billiton Group's Dual Listed Company (DLC) structure, portfolio and capital management. Having reviewed the elements of Elliott's proposals, the Board has concluded that the costs and associated disadvantages of Elliott's proposal would significantly outweigh the potential benefits and that Elliott materially overstates the potential value that could be created by its proposals. We have outlined our clear roadmap to maximise the value of our assets. We continue to make strong progress across our six focus areas for value creation, underpinned by our Capital Allocation Framework which balances the need to invest in our business, create the strength and flexibility to take advantage of opportunities as they arise and to efficiently return capital to our shareholders. We are confident that our strategy is in the best long-term interests of all shareholders.

BHP Billiton Chief Executive Officer, Andrew Mackenzie said: “Everything we do at BHP Billiton is designed to create value for  all of our shareholders, today and for the long term. We have fundamentally restructured BHP Billiton to increase returns. The demerger of South32 and US$7 billion of divestments has reduced the number of assets in the portfolio by over a third and our new organisational structure has removed layers of management. Our more focused portfolio has enabled us to lower unit costs by over 40 per cent. And we have improved our approach to capital management which has strengthened the balance sheet and increased the discipline with which we invest and return cash to our shareholders. But we have more to do and we are not standing still. A simpler portfolio allows us to improve safety and operational performance more quickly with maintenance, project and geoscience centres of excellence spreading petroleum and minerals expertise across the group. We have significantly reduced the capital intensity of our growth options and changed our approach in shale to improve returns and lower risks on new investments. Our more focused approach in exploration is delivering results with three discoveries over the last 12 months and our new technology function will unlock further value. This quarter we have added value to the portfolio across each of our six focus areas. We continued our targeted high-return investment in shale with the approval of two more rigs in the Haynesville supported by our hedging strategy. Plans to monetise a portion of our non-core acreage for value, such as parts of the southern Hawkville, are underway. In the Eagle Ford, we are increasing recoveries by testing staggered wells and larger frac jobs. In the Permian, we are exploring opportunities to consolidate and optimise our acreage position so that we can drill longer lateral wells to lower costs. We have approved the Mad Dog Phase 2 project and investment in Caval Ridge to enable full utilisation of its 10 Mtpa wash-plant.”

BHP Billiton is an ASX, LSE and JSE listed petroleum, copper, iron ore, coal and potash exploration and development company with operations in South Africa, Algeria and Mozambique.